The U.S. Securities and Exchange Commission, in coordination with the federal and state organized Residential Mortgage-Backed Securities Working Group, has charged JPMorgan Securities and Credit Suisse Securities with knowingly misleading investors in their offerings of residential mortgage-backed securities, National Mortgage Professional Magazine reported Nov. 20.
The two institutions quickly agreed to settle the case, accepting a $400 million penalty that will be distributed to investors harmed by the transactions. The settlement is subject to court approval.
JPMorgan has agreed to pay $296.9 million to settle with the SEC, while Credit Suisse will settle for $120 million.
In its filing, the SEC alleged that JPMorgan provided misleading information about the delinquency status of mortgages that were used to provide collateral for an RMBS offering that it underwrote. While JPMorgan received fees of $2.7 million, investors experienced losses of some $37 million on delinquent loans that JPMorgan failed to disclose. The firm also was on the hook for Bear Stearns’ failure to disclose its practice of acquiring and keeping cash settlements from loan originators on delinquent loans it sold into RMBS trusts.
Credit Suisse faced similar charges for failing to disclose its practice of retaining cash it received from settling claims against mortgage originators for problem loans it sold into RMBS trusts. The firm also misstated when it would repurchase loans from trusts if borrowers missed the first payments. Credit Suisse made $55.7 million from its bulk settlement practices, while investors lost more than $10 million.
“Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed,” Robert Khuzami, director of the SEC’s Division of Enforcement, told National Mortgage Professional Magazine.
The SEC filing concerned RMBS offerings made by JPMorgan in December 2006 and offerings and settlements made by Credit Suisse between 2005 and 2010.